All business activity involves risks of various kinds. Particular risks may be more significant for one type of business than another. Owners of chemical plants, for example, are especially careful to avoid fires. Banks do their best to check out the honesty of all job applicants. Organisers of 5-day cricket matches look to choose seasons, times and venues that are unlikely to suffer poor weather. Airlines observe rigorous aircraft maintenance programmes. Construction companies think long and hard before deciding to bid for a contract to help rebuild a war-torn country. Pharmaceutical companies try to ensure that their research into new so-called wonder drugs has been rigorous enough to make the risk of unforeseen side effects negligible.
All these businesses hope that the events they have most reason to fear will not occur. If such events do occur, however, the businesses want to be sure that they can survive the misfortune. The insurance industry is the means by which these businesses can acquire the financial security they seek.
Because Lloyd's syndicates manages the risks of others by providing appropriate types of insurance, it is vitally important for Lloyd's to be aware of any changes in the business environment.
In the past few years, new risks for businesses have emerged particularly for multinational companies engaged in international trade. These include exposure to international fraud, corrupt practices, terrorism and compensation claims. To safeguard their assets and to ensure their survival through operating profitably and efficiently, businesses need insurance cover to protect them. Lloyd's is a major world market for providing such cover. This Case Study looks at some of the challenges Lloyd's faces and how it responds to these.